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Swiss gold

Three more recent articles which I have published on sharpspixley.com look at massive silver ETF and institutional buildup, latest Russian gold reserve figures, Swiss gold exports and China cutting back on gold imports. Click on titles to view full articles:

The latest gold reserve figure from The Russian central bank shows the addition of 9.33 tonnes of gold to the nation’s forex reserves in July, back to the lower levels seen earlier in the year. Does this indicate a trend to lower accumulations?

There has been a drastic change in the latest destination figures for Swiss gold exports with China apparently curtailing gold imports, but the UK taking pride of place as a destination due to the rise in Gold ETF deposits.

Another of my articles published on the Sharps Pixley website looks at total gold exports from Switzerland last year – the lowest level for 11 years, but still substantial at 1,600 tonnes. As has been apparent throughout the year over 80% of the gold routed through Switzerland has been headed for relatively strong hands in Asia and the Middle East, and taken together with gold production in Asia in particular – mostly China, but also in countries like Indonesia which is a significant producer in its own right (No. 9 in the world in 2016) [see:World Top 20 Gold: Countries, Companies and Mines]– these areas probably account for the accumulation of more than 80% of all the world’s newly mined gold. China in particular absorbs goldlike a sponge and doesn’t release it back into the global market place.

With Asian populations growing, gold demand will continue to rise there given the propensity for the citizenry to own gold, while peak newly mined gold is almost certainly already with us we are going to see supplies squeezed in the years ahead with a consequent positive effect on the price regardless of the powers that be trying to suppress it. Switzerland’s re-refining and expoirt business thus remains an excellent pointer to current and future gold flows.

The continued accumulation of physical gold in Asia and the Middle East goes on regardless as shown by gold exports from Switzerland – the leading national conduit for gold bullion. Switzerland has achieved this position through its refineries specialising in taking gold in unmarketable forms and importing dore bullion from mines and refining, or re-refining it into the sizes and purities in demand in the eastern market place. This is combined with the great reputation of Switzerland in the gold marketplace and as a conduit for such activities.

Although Swiss gold exports in 2017 were the lowest in 11 years they were still substantial at over 1,600 tonnes. That is equivalent to half the world’s annual new mined gold output, and with China the world’s largest gold miner already, and a known non-exporter, the Asian and Middle Eastern regions will have accumulated at least 65% of global gold output adding up the imports from Switzerland plus Chinese domestic production alone. But other countries also export gold directly to Asian and Middle Eastern refineries and we would guesstimate that perhaps 80% of all the gold bullion moving around the world may be ending up in these regions – a huge proportion of what remains the world’s No.1 monetary asset (in our opinion at least). With bitcoin continuing to crash – it has lost almost 60% of its value from its peak in December and could well crash much further as scared investors offload on the way down – gold may be again coming into its own as a key investment asset class in the minds of investors seeking to preserve their wealth.

In December, Swiss gold exports followed the pattern established over the year with India the no. 1 individual destination with 32.3 tonnes – or around 21.5% of the total – closely followed by China (25.7 tonnes) and Hong Kong (21.1 tonnes). Assuming that most, if not all, the Hong Kong exports are also bound for the Chinese mainland, greater China was thus the biggest recipient of the Swiss gold. Overall around 86% of Switzerland’s December gold exports (totalling 150.4 tonnes) was destined for Asian and Middle Eastern nations.

If we look at the full year 20i7 figures for Swiss gold exports – neatly laid out in the bar chart below from Nick laird’s www.goldchartsrus service – we see that these proportions pretty well mimic the full annual picture:

This chart shows that over the full year around 81.6% of the Swiss gold was headed for Asia and the Middle East with India the biggest individual national importer with 26.2%, but with China and Hong Kong combined taking 35.8%.

The other point which is apparent from the Swiss gold export figures is something we have stressed continually over the past year – that Hong Kong gold exports to mainland China can no longer be seen as a proxy for Chinese gold imports – or even a rough guide. Mainstream media, and some analysts who should know better, still seem to equate the regularly published Hong Kong gold export figures as such, but as the Swiss figures show the greater part of mainland China’s gold imports now comes in direct – avoiding Hong Kong altogether. This percentage of direct imports appears to be growing.

The figures also show that there has been a major recovery in Indian gold imports last year after a very low 2016 figure, but still Greater China remains comfortably the biggest importer – and if you add China’s own gold production of perhaps 450 tonnes last year into the mix, as well as direct imports from a number of other countries, China remains easily the world’s No. 1 accumulator of gold – although the breakdown of where this gold actually goes internally is rather less certain – hence the seeming anomalies in the nation’s estimated consumption figures from the big precious metals consultancies like Metals Focus and GFMS.

Lawrieongold readers may be interested to read my two most recent articles on SeekingAlpha.com and Sharpspixley.com which both look at specific aspects of the current gold and gold stocks markets.

To read the Seeking Alpha article click on Billionaires, Gold And Gold Stocks… They Are In For The Long Term, Should You Be Too?. This in a way comments on some recent media decrying the idea of following some highly publicised media coverage of some huge investments in gold and gold stocks by some high profile billionaires. My view is that it’s not too late to follow their example as they are for the most part investing in gold for the long term. They see a whole lot of factors ahead which will support a rising gold price over the remainder of this year and into the years ahead.

For the Sharps Pixley article click on Reversing gold flows could lead to Perfect Storm. This article examines the changes in gold flows which have been taking place this year which have seen the main area of demand in the West, rather than in the East which has been the case for the past several years. This has been due to weak Asian demand coupled with enormous investment demand in the U.S. and Europe exemplified by the big move back into gold ETFs and in coin sales. It also takes a look at the recent Swiss data which saw big gold imports from the UAE and Hong Kong – normally major recipients of gold from the Swiss refiners, and a very big export figure for gold into the U.K. – again a huge reversal of the normal flows. Is this an indicator that London is actually short of unattributable physical gold?

In my view these are very interesting times for the gold market, which could result in some good upwards momentum, particularly given the recent weak U.S. employment data which could yet again dissuade the Fed from raising interest rates in the near future. And if and when the Fed does raise rates, probably by a paltry 25 basis points again, should gold investors be worried. Consider what happened to the metal price when the Fed raised rates in December. It was closely followed by one of the biggest gold price surges in years rather than knocking the price back as most analysts were predicting. The weakness in price mostly occurred prior to the event and strength afterwards.

Readers may also want to look at the possible impact of a Brexit should the U.K. public vote to withdraw from the EU in 3 weeks time. This now looks to be a definite possibility, while only just over a week ago many commentators had virtually written this possibility off as highly unlikely. There is an underswell of resentment regarding EU membership in the U.K. which only now seems to be becoming apparent. See: Brits and Europeans may find gold attractive as Brexit possibility looks stronger.

The latest announcement on Swiss gold exports – for January – showed that for that month the small European nation, which provides a significant percentage of Asian physical gold demand from its refineries, exported far more gold to Mainland China than to Hong Kong. 42.1 tonnes as compared with 21.5 tonnes. A chart from Nick Laird’s Sharelynx.comsite detailing the latest gold export figures is shown below.

So why is this significant? For many years the vast majority of gold flowing to mainland China was imported first into Hong Kong and then to the mainland. So much so that Hong Kong gold exports into the Chinese mainland were taken by much of the world’s media and analytical consultancies as being a proxy for total Chinese gold imports. For the past few years, though, things have changed substantially with much more gold being imported directly, bypassing Hong Kong altogether. Yet still media headlines trumpet falls and rises in the Hong Kong to China export figures as though these are still a proxy for total mainland China gold imports. As the latest Swiss export figures show, this is most definitely no longer the case.

Hong Kong still remains an important conduit for gold imports to the Chinese mainland but its significance seems to be diminishing year on year which readers should bear in mind the next time a headline blares a fall in Hong Kong exports to China with the implication that this means that Chinese demand is falling accordingly.

Another interesting point from these Swiss figures is that over 90% of Swiss gold exports are flowing to Middle Eastern and Asian nations. Switzerland’s own gold imports come in primarily from the UK – still the world’s major gold centre. It flows via Switzerland for London good delivery gold bars to be re-refined and recast by the dominant Swiss gold refiners into the smaller bars and wafers which are mostly traded in the Middle East and Asia.

In January, Switzerland imported 166.9 tonnes of physical gold of which that from the UK totalled 61 tonnes – or 36.5%. Interestingly the second largest source of gold flowing into Switzerland was from Venezuela at 35.7 tonnes, thus confirming earlier reports that Venezuela, having only recently repatriated its gold to hold it within the nation, was now shipping significant quantities to Switzerland. This is thought to be being used to mitigate its precarious debt position in a series of gold swap agreements via The Bank for International Settlements.